Which of the following investments is the least appropriate for a qualified pension or profit sharing plan? A) Municipal bonds. B) Treasury bonds. C) Zero-coupon bonds. D) Corporate AAA bonds.

Answer: A When advising qualified plans, it is not a good investment practice to buy tax-free income. The yield on municipal bonds is typically lower than that on other bonds of comparable quality due to the tax-exempt status of their income payments. Any assets in the retirement plan are free of current taxation so the usual municipal security benefit is lost, and the portfolio contains assets that produce less income. A second problem arises because as participants in the plan begin withdrawing assets, the withdrawal is usually 100% taxable, thus turning what is inherently tax free into something taxable. It makes more sense to buy higher yielding taxable income and to shelter the income within the tax-exempt plan trust. More test answers on https://studyhippo.com/q-bank-unit-11/

Home Page Social Science Economics Finance Profit Sharing Plan

Profit Sharing Plan Flashcards, test questions and answers

Discover flashcards, test exam answers, and assignments to help you learn more about Profit Sharing Plan and other subjects. Don’t miss the chance to use them for more effective college education. Use our database of questions and answers on Profit Sharing Plan and get quick solutions for your test.

What is Profit Sharing Plan?

Profit sharing plans are a form of compensation system whereby a company’s profits are shared amongst its employees. This type of incentive system can be beneficial for both employers and employees as it encourages productivity, loyalty, and dedication to the business. From an employer’s point of view, profit sharing plans provide a way to reward hard-working staff without having to increase fixed salaries or wages. Profit sharing also serves as an effective means of encouraging employee motivation and loyalty since employees will tend to work harder when they feel that their efforts could lead to greater rewards in the future. Furthermore, these types of incentive systems may help employers attract higher quality employees who are willing to work towards sustained success rather than short-term gain.For employees, the obvious benefit is that they stand to receive some monetary reward if the company performs well financially over time. Depending on how generous the plan is structured, this could mean receiving a significant bonus at regular intervals throughout the year or even every month/quarter depending on how much profit has been made by the firm during that period. In addition, participating in such a scheme may serve as further motivation for workers since there is always an opportunity for them to improve their performance if they want bigger returns from their investment in terms of personal effort and commitment. It should also be noted that certain tax incentives may apply when it comes to profiting from such schemes; thus making them even more attractive for potential participants. In conclusion, profit sharing plans can offer great benefits for both companies and individuals alike provided that they have been properly implemented by management with all stakeholders’ best interests taken into consideration. Such programs can prove invaluable in terms of increasing job satisfaction levels while simultaneously serving as an effective means through which business owners can ensure long-term profitability within their organizations making them worthwhile investments indeed.